SS9 FI question

CFA Level III
#1

Alexis Jones, a Sierra Funds bond trader is considering the following swap deal. - On January 1, 2001, TTT Corporate 7.0s of 2006 traded at a bid side price of 120 basis points over the 5- year U.S. Treasury yield of 6.20% at a time when LIBOR was 5.90%. - On the same day, 5-year LIBOR-based swap spreads were at 100 basis points (to the U.S. Treasury). - Assume that a bond manager bought the TTT issue and simultaneously enters into this 5-year swap.

In the trade Jones is considering, the fixed rate corporate bond’s spread over LIBOR would be ?

#2

20 bp ?

#3

^ thats the answer.

However, the question says OVER LIBOR ? what does it mean ? should be over swap fixed rate?

another question, what is the float rate ?

confused because i see examples say: loan rate is LIBOR + xxx bps. (sth like LIBOR + 200 bps)

#4

The bond:

120 bp over Treasury (6.2%)–>7.4%

The swap:

Float: LIBOR (5.9%) (because it says LIBOR based swap)

Fixed: 100bp over Treasury (6.2%) —>7.2%

The payments involving treasury must offset.

Receives 7.4% (from bond) and LIBOR (from swap)

Pays 7.2% to swap

#5

ahhh, i did not see libor-base…

so libor 5 years rate is not used, but it traps me :))